Tag Archive | "auditing"

Vince Cable to exempt many SMEs from audit filing

Last Friday, Vince Cable announced that the audit system is to be overhauled; a move that could save SMEs and accountants for contractors £440 million each year.

The reforms will make it easier for new and expanding businesses to negotiate the auditing system, giving them more scope to concentrate on growth and expansion. The EU has less stringent auditing requirements and Cable’s reforms will bring the UK’s SMEs more into line with their European counterparts.

Furthermore, micro businesses and limited company contractors will only need to produce one simplified set of accounts. This amendment could benefit two million companies and save around £400 million annually.

After the announcement, Cable said small firms have to be allowed to grow and the audit reforms will ensure that small businesses can concentrate on growth and hiring, rather than paperwork.

Reaction from the major accountancy bodies was mixed. The assistant director of business policy at the ICAS, Paul Probin, said it was not in the public interest to remove the audit requirement from medium sized businesses.

The ACCA’s head of technical pointed out that the proposals were still at the consultation stage but clearly a lot of firms will be conducting fewer audits and he said he was disappointed that accounting and auditing rules had been labelled as red tape.

The ICAEW, on the other hand, broadly supports measures that ease the regulatory burden on small businesses. The audit threshold is currently £6.5 million turnover and he believes that if it is raised larger companies will carry on having audits voluntarily.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: totally focused, no hocus pocus by kara allyson

Posted in newsComments (0)

There needs to be more competition in the audit market place

The Big Four audit firms have made it virtually impossible for smaller firms to have a fair chance, according to BDO.

The mid-tier firm made the statement in its written evidence to the House of Lords economic affairs committee tasked to investigate the lack of competition in the audit industry. The submission said that both domestic and international investors want to see more competition. Companies also want more choice but potential entrants have difficulties raising enough money to enter the market.

BDO also said that although there is no evidence to suggest that the dominance had affected quality, there is evidence that it has caused an increase in prices.

James Roberts, a partner at BDO, suggests that increasing audit exemption levels would benefit many UK companies.

BDO has joined forces with three other mid-tier firms; Grant Thornton International, Mazars and RSM International to call for changes in auditing procedures in order to prevent another global economic crisis.

The gang of four issued a joint statement swiping the dominance of the Big Four and saying that we must all learn from the economic downturn and accept that “no change” is no longer an option. They also call for the creation of an EU single market for auditing which will have common international standards.

Michel Barnier, the EU internal markets commissioner, pointed out that the reputation of the audit profession had been damaged by the financial crisis and there is a need to encourage more competitiveness within the market. He suggested placing ceilings on the larger audit firms’ total market share of limited companies and joint auditing, whereby two different firms conducted the audit, one of which was not a Big Four firm, as possible solutions.

The Financial Reporting Council’s chief executive, Stephen Haddrill, was not in favour of the joint audit proposal. Instead, he would prefer to see financial institutions using non-Big Four firms when they need advice for their risk committees. He also warned that a audit regulators need to develop a contingency plan in case one of the Big Four collapsed.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Pigeons by the12thplaya

Posted in newsComments (0)

Auditors in the dog house

Accountants will know that dogs generally bark at the least sign of danger but now Lord Lawson is suggesting that accountants should bark also! He has said that auditors were amongst the dogs that didn’t bark throughout the recent banking crisis.

A House of Lords enquiry, which has been looking into the audit profession, has found that accounting rules had a significant role to play in the crisis. Tim Bush, who is a member of the ASB Urgent Issues Task Force, pointed out that international accounting standards have forced auditors to stop being prudent when they carry out audits.

Bush said that accounting rules on contingent liabilities, impairment and securitisation were key factors in the collapse of the UK banks. He also suggested that we should reinstate UK GAAP.

Meanwhile, the Accountancy and Actuarial Discipline Board appears to have more on its plate than it can handle. The watchdog for the audit profession currently has 17 active cases to work through.

At the beginning of the week the AADB announced a new investigation into KPMG’s audit of BAE systems. The board has launched some high profile investigations since the crisis began including PwC’s JP Morgan Securities audit and an audit of Lehman Brothers by Ernst and Young.

The AADB team only consists of 5 members, two forensic accountants and three lawyers, and the heavy workload has meant they have to outsource a large proportion of the work, which slows down investigations. It is expected that further cases will be announced in the coming months.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: In The Dog House Red Accent by skycaptaintwo

Posted in newsComments (0)

Audit Commission to go, but is that a sensible move?

The Audit Commission is to be scrapped, Eric Pickles, the communities minister, announced last Friday.

The commission employs about 2,000 people to monitor the performance and accounts of public sector bodies. The government claims that shutting it down will save around £50m a year.

This move is likely to benefit the private sector as councils and other public sector bodies will be able to tap into the open market and appoint their own external auditors. By outsourcing audit expertise, the government hopes to cut back on the centrally imposed bureaucracy and costly auditing, thus saving money for council tax payers.

The National Audit Office is to set up a new auditing framework to ensure public sector bodies are still subjected to robust auditing.

Pickles said that the Audit Commission is no longer a watchdog looking after the interests of the taxpayer; rather it has become a creature of Whitehall. This new plan goes together with proposals to create an army of local people who will hold local bodies to account when it comes to spending tax and delivering value for money services.

The Audit Commission, probably understandably, is less than optimistic that this new approach will work. Michael O’Higgins, the Commission’s chairman said the department had more than fulfilled its aims since it was set up by Michael Heseltine and the Tory government in 1983.

The ACCA believes the move will prove costly and lead to inconsistencies in local government reporting. The head of public sector at the ACCA, Gillian Fawcett, pointed out that although a lot of the Audit Commission’s work is currently contracted out; the commission ensures that reporting is consistent.

Whilst this move will undoubtedly benefit some private sector accountants and contractor accountants, the general feeling on the street is that the work will go to the larger accounting firms rather than smaller local businesses.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Yummy Jelly Beans by Ruth L

Posted in newsComments (0)

Lax audits could lead to an increase in company fraud

Contractor accountants may be interested in the warning from the CEO of BDO Global, Jeremy Newman. He has cautioned that auditors may be cutting corners because of increased competition and cost pressures.

In his blog, Newman pointed out that extreme pressure to reduce costs could encourage auditors to cut corners and less stringent audits have the potential to lead to more fraud.

He says that whilst there has been a drop in demand for audit services, this should be offset by changing accounting standards, additional regulation and high quality audits.

Recruitment levels have fallen by more than the demand for audit services and the economic law of supply and demand should have led to a price increase and yet that has not happened and costs are decreasing.

The potential for an increase in company fraud should cause concern as research, also from BDO, reveals that the value of fraud in the first half of 2010 has risen to more than £1bn.

The head of BDO’s fraud services, Simon Bevan, said that during the recession there was a rise in the number of managers setting up companies within companies and diverting lucrative contracts to third parties. Insider dealing also rose.

Internal management originates 16% of reported fraud whilst another 17% is instigated by suppliers and third party customers. The finance and insurance sectors are the worst offenders with almost 50% of all fraud cases being committed by those 2 industries.

In the past year the average fraud has risen by almost £1m to £6m. Bevan said that fraud is now as prevalent as it has ever been and companies need to be even more vigilant during recessionary times.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Caught in the act by saxonmoseley

Posted in newsComments (0)

Regulator aims to crack down on auditors

The chief financial regulator, the FSA, wants new powers to censure, fine or even disqualify accountancy and audit firms.

A new report criticises auditors over their failure to scrutinise management adequately in the run up to the financial crisis. The report accuses auditors of showing a disturbing lack of scepticism.

The FSA says it now needs more powers of enforcement so it can deal with individual cases of regulatory concern.

Currently, officials from the FSA only meet auditors once a year but they now want to meet then several times to discuss any potential issues before year ends. The Association also wants to have direct access to listed companies’ audit committees so that they can discuss audit issues.

Michael Izza, the chief executive of ICAEW, said any reform of the audit profession needs to be based on evidence. He defended auditors, saying they had not failed and he flatly rejected that there had been a fundamental failure in auditing processes.

He stressed that last year’s Treasury select committee had determined that there was little evidence to show that auditors had failed in their duties towards limited company contractors.

Izza did agree that there were lessons to be learnt from the crisis and the accountancy profession was asking itself how to evolve the current audit model to meet the ever changing needs of the market. However, changes should focus on the actual situation, he said.

The head of audit at PwC UK, Richard Sexton, said that the FSA’s perception of an auditor’s responsibilities appears to differ from that of the auditing profession. Auditor’s view their role as one of making sure management has the right evidence to back up its assumptions, not to present them with alternative views.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: soma dispenser by Idle Type

Posted in newsComments (0)

  • Switch Accountants for FREE

    Switch Accountants for FREEAt K&B Accountancy Group we have introduced a simple and straightforward approach to changing accountants. We’re offering contractors, consultants and freelancers the opportunity to switch to K&B Accountancy Group for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return* *T&Cs apply

our top 5 twitter posts


contractor accountants


twitter Join the conversation
Free Telephone Advice